Hmc industry report_drone_technology_160321[1]

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Executive summary
Drones have become a part of our everyday language and landscape. As manufacturers, vendors, and
conglomerates continue investing in the technology, it is geared to revolutionize the global economy.
Facebook’s launch of “Aquila”, the solar-powered drone technology used for providing Internet access
to remote areas1
will open up the global economy to billions of individuals. This however is just the tip of
the iceberg, as Facebook is not directly dealing with its customers, instead it is partnering with local ISPs
to deliver its services. The most prominent drone service in the media would be Amazon’s Prime.
Alternatively, Google is developing its own drone delivery system and the two companies have very
different ideas as to how the system should be run.
This clearly indicates the dependency of the emerging drone industry on the growing, supporting
ecosystem of its core drone technologies (hardware and software) and its complete value chain (from
manufacturers and vendors, to resellers and value-added service providers).
Explosive growth
The global drone market is showing a visible shift from catering to the defense market to the
commercial/consumer side. As the market for civilian/commercial drone gains momentum, with a
compound, annual growth rate CAGR of 19% in the next 5 years2
, the global commercial market is
taking shape around seven core industries — energy, construction, real estate, utilities, agriculture,
mining, and film production.
The AUVSI’s estimate that by 2025, 160,000 drones will be sold every year3
, a clear indication that the
drone industry as a whole (from design and rapid prototyping to manufacturing and cost-effective
supply chain management) is maturing.
Although Amazon has taken to marketing its UAV delivery systems, regulation bottlenecks, and safety
concerns for effective, deployment of delivery drones in civilian space have kept the e-commerce
delivery space as a distant focus for the industry, which is driving the development of ground-based
drones. Meanwhile, in China, Alibaba started testing drone deliveries in 1H15 while in Europe; Swiss
Post began using unmanned drones to test mail delivery in the same period.
Emerging Ecosystem of Drone Industry
Investment opportunities in the growing drone industry can be identified by understanding the
ecosystem that will sustain the industry.
1
http://www.theguardian.com/technology/2015/jul/31/facebook-finishes-aquila-solar-powered-Internet-drone-with-span-of-
a-boeing-737
2
Report http://www.businessinsider.com/uav-or-commercial-drone-market-forecast-2015-2
3
http://www.auvsi.org/auvsiresources/economicreport

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The drone industry and ecosystem can be structured into distinct players — starting with the
construction of the craft itself, the development of specialized components and its technology, to the
uses it is put to by operators in the field.
The figure below maps the maturing ecosystem of stakeholders and dependents in the industry:
Fig 1: Overview of the key stakeholders and components of the emerging ecosystem sustaining the drone industry
Source: HMC Investment Securities
Primary stakeholders include:
Manufacturers and assemblers — These design, prototype, and produce drones and the payloads that
they can carry. Some have established complete, independent entire production lines, while others only
assemble the components supplied by other niche-based component manufacturers.
Technology suppliers — These include complete software and hardware solutions for allowing the
drones to perform certain tasks and functions. Examples include flight control operating systems,
mapping new and unknown area/environments, real-time analytics, among others.
Component suppliers — These supply the manufacturers and assemblers with the various components
needed to construct/assemble the drones. Components include electronics, sensors, engines, batteries,
remote controls, etc.
ClienteleService providersProducersSuppliers
Components
Technology
Assemblers
Manufacturers
eCommerce
Operators
B2C consumers
Civil
Defense
Training Centers
Feedback/Research/Needs assessment

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Operators — The people and equipment used to control the drone from ground and complete
operations. This is the service industry that currently charges per operation. The service industry also
offers analytics for the data collected by the drone.
Training centers — Authorized centers and programs that aid clients to gain the skills and practical
knowledge about regulations and effective control and maintenance of the drones necessary to safely
utilize them. This also includes programs that offer certifications to students for operating drones for
civil and military missions.
This is known to overlap as some drone operators also develop training centers. For instance, in France,
Delta Drone has created the Ecole Francaise du Drone, and Drone RC has established the Centre de
Formation et d’Apprentissage du Drone.
Industry trends
The drone industry is set to take off, with dramatic implications for everything from airspace regulations
and public safety, manufacturing, and a plethora of industries — ranging from agriculture, construction,
and real estate, to energy, utilities, mining, and entertainment.
According to the AUVSI, if the Federal Aviation Administration (FAA) manages to integrate its unmanned
aircraft systems (UAS) within the US’s national civilian airspace (the deadline was originally 2015 but was
missed), the net economic impact of the drone industry could easily reach USD82.1bn by 2025 —
creating over 100,000 high-paying jobs within the drone ecosystem. Additionally, the short-term impact
is huge. During the first three years alone, it will create over 70,000 of the 103,776 new jobs that will be
created by 2025. The overall economic impact is projected at USD13.6bn.
The commercial drone industry is maturing thanks to the wide acceptance and demand of drone
technology and drones themselves. The industry spans major manufacturers, integrators, resellers, and
value-added service providers that can work in tandem to scale the production and hence, the reach, of
drone manufacturers.
Key challenges
Regulations
The current expansion of the market is limited because of a lack of an adequate and standardized
regulatory framework in most countries. This has forced manufacturers and new startups to seek
individual authorizations in different countries.
In the US, current laws regulating airspace are effectively banning the flight of commercial UAVs, and
the mandated changes will not be finalized before 2017. During that time, manufacturers can easily
work through existing technology roadblocks that prevent entry into the market against established
global manufacturers.
Google visited Australia to flight-test its drone technology for “Project Wing”. The Australian authorities
are concerned about the privacy and safety of the general public. Canberra made it clear that drones for
the civil space must not threaten the privacy and physical integrity of the general public.

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This is changing, however, as laws previously authorizing the development of drones in the civil airspace
are further consolidated by some governments, including the European Commission (2013,
development of framework for safe integration of drones in civil airspace), France (2012), the US (2012),
Canada (2015), and Australia and Brazil (2014).
France’s example:
The use of drones is regulated by two ministerial decrees as of April 2012. The decrees identify concerns
for:
 Drone manufacture — Identifies conditions under which they can be used and certain
capabilities for the people who pilot them.
 The airspace — How the drones function within it. Currently, the biggest concern is how these
drones can operate within the same airspace as other aircraft.
To ensure the right and proper cohabitation of the airspace with other aircraft, the Directorate General
of Civil Aviation (DGAC) has also offered four scenarios for use. The scenarios are categorized according
to:
 The type of piloting — This includes direct view or out-of-sight view/first-person-view of the
pilot.
 Over-flight site — Non-populated area or an agglomeration.
The scenarios offer the maximum airspace radius, the maximum height, and the maximum payload that
the drone can carry.
Fig 2:
Overview of regulated drone airspace in France
Scenario Limitations
S1
Flight type: Visual flight
Flight area: Unpopulated
Altitude 150 m
Distance 100 m
Weight 25 kg
S2 Flight type: Unpopulated
Flight area: First person view (FPV)
Altitude 50 m
Distance 100 m
Weight 25 kg
S3 Flight type: Populated
Flight area: Visual
Altitude 150 m
Distance 100 m
Weight 4 kg
S4 Flight type: Unpopulated
Flight area: First person view (FPV)
Altitude 150 m
Distance No limit
Weight 2 kg

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Traffic management
The drone industry will be competing for airspace with the established airline industry. NASA has
already started testing and developing its air traffic management system for drones to ensure the safe
simultaneous use of the already congested airspace.
Fig 3: Nasa’s new air traffic management system
Source: NASA, HMC Investment Securities
Emerging competitors outside of the US
Various notable early UAV manufacturers have emerged outside of the US, with Israel, France, Germany,
UK, Australia, Japan, Korea, and China striving to gain a bigger share of the pie.
Legacy manufacturers have an advantage
Currently, legacy drone manufacturers who have already been in the field as manufacturers for the
defense sector have an advantage in the fast-evolving niche of drone technologies in the
consumer/commercial market.
Drone insurance now catering to business risk averseness
Additionally, as insurance companies take on a more prominent role in creating insurance plans for
drones, entry into the drone sector has become less risky. AIG has started selling insurance for
businesses using UAVs. The intention is to capitalize on the adoption of drone technologies for business
use.
The Robotics Internet of Things and the new, connected UAV airspace
Drones are becoming more consumer-oriented and commercialized because of the rise of the Robotics
Internet of Things (RIoT), where connectivity across sensors has made it possible to create ever smaller
and more powerful drones.

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This allows drones to become smarter, more intelligent, and autonomous, further reducing the
limitations imposed by regulations and accelerating the development of a standardized framework for
regulating drones across international airspace.

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Introduction – Know drones
Once confined to the military sphere, drones have become a common sight today. Technological
advancements has made aerial technology cheaper and made it available for numerous applications in a
multitude of industries, including agriculture, logistics, entertainment, law enforcement, and of course,
the military. Although military applications still account for over a 90 percent share (USD6.4bn) of the
global drone market, the use of drone technology for commercial purposes continues to climb and is
likely to reach 12 percent of total global spending on drone technology.
Definitions
The term ‘drone’ is commonly used for aircraft that have no human pilot onboard. Drones which are
used for civilian application are also known as Unmanned Aerial Vehicles (UAVs) or UAS. But more
accurately, a drone, by definition, is a system that can be teleoperated or operate semiautonomously or
fully autonomously. So in short, all mobile components in the RIoT ecosystem, be they teleoperated,
semiautonomous, or autonomous can be called drones or robots—the terms are interchangeable.
John Villasenor defines drones as “an unmanned aircraft that can fly autonomously”. The Federal
Aviation Administration of the US defines drones as “Devices used or intended to be used for flight in the
air that has no onboard pilot. This device excludes missiles, weapons, or exploding warheads, but
includes all classes of airplanes, helicopters, airships, and powered-lift aircraft without an onboard pilot.
UASs do not include traditional balloons, rockets, tethered aircraft, and unpowered gliders.”
On the other hand, the US Department of Defense defines drones as, “powered, aerial vehicles that do
not carry a human operator, and uses aerodynamic forces to provide vehicle lift.”
After analyzing these three definitions, we can identify the following essential characteristics of a drone:
- A drone has the capability of sustained and reliable operation.
- A drone has no onboard human operator.
- A drone provides enough control to enable the performance of useful functions.
Components of a drone
Drones vary on the basis of their size, endurance, maximum altitude, maximum range, battery life, data
downlinks, maximum loading capacity, and additional features, such as videography, First person view
(FVP), etc. Manufacturers differentiate drones based on one or more of these features and capabilities,
and their innovative products. However, all of them rely on several core components.
Understanding these core components is crucial for understanding the ecosystem that produces drones,
and hence in identifying the opportunities present across various stages of its value chain.
The primary components of a drone include:
 Flight controller board – This is the brain of the drone’s Flight Control System (FCS), and is
responsible for making everything work. It has built-in sensors that measure gravity, rotation,

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and movement. The flight controlled board converts the signals received from the sensors into
data and sends it to the ESC to increase or decrease the speed of the motors.
 Software — This includes the operating system(s) for the onboard flight controller and other
FCSs, and the operating system for the ground control system/remote-controller.
 Electronic speed controllers (ESCs) – The job of ESCs is to control the flow of electrical power
from battery to the motor in order to help the drone ascend, descend, or move forward.
 Propellers – The number of propellers present on a drone vary. The higher the number of
propellers present on a drone, the greater load it can carry.
 GPS and compass – These components help on determining the altitude and position of the
drone. Most consumer-drones have a ‘return home’ function as well.
 Battery – The battery serves as the source of energy for these unmanned vehicles. However,
drones with a heavier battery usually have a lower load carrying capacity.
 Frame — The body of the drone.
 Extras – Drones may also contain some extra features, such as DSLR cameras, propeller guards,
extra batteries, storage devices, etc.

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Table 1: Drone component manufacturers
Business Manufacturer Note
Cameras
GoPro
Known for: Developing wearable video camera
Relevancy: Developing its own line of drones with cameras
Note: Recognized brand with pioneering technology and proven business model
Electro-mechanical
systems for motion
tracking
GPS integration
InvenSense
Known for: Developing micro electro-mechanical system gyroscopes that are already in use in tablets and
smartphones, and recently in drones
Relevancy: Drones require lightweight motion tracking devices. Additionally, as demand for smaller drones increases
(especially in the consumer market) micro-tech will grow in demand
Note: Motion tracking devices are at the core of drone flight control systems for maintain flight stability. InvenSense
hopes to aggressively capture a large market share, which in turn will require several rounds of funding
Video processing
chipsets
Ambarella
Known for: Developing HD video processing chips for TV broadcasting
Relevancy: Develops powerful, lightweight chipsets and software for recording and transmitting high definition videos in
real-time. This is a critical component for larger, commercial and civilian drones. Its chips are already deployed in the
latest generation of high-definition security cameras’
Note: Positioned to become the prime supplier for manufacturing chipsets that offer HD audio, videos, and images
through a single chipset
Drone controllers
Control stations
IXYS Corp.
Known for: Developing power controllers for drones
Relevancy: Power generation is an integral component of controlling drones. How efficiently power is generated
through the propellers (or turbines) directly affects a drone’s flight time and range
Note: Economic viability of drones is wholly centered on how effectively onboard power is used to generate thrust. As
one of the major innovators and suppliers of power control technology in the drone industry, it is positioned to lead
Value-added
Services
Amazon Known for: E-commerce

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Relevancy: Amazon is developing its own line of drones for delivering packages in less than 30 minutes (Amazon
Prime Air). The company is committed to making it a commonplace delivery method in the future.
Note: Amazon continues to revolutionize the ecommerce and retail market space. Prime Air will radicalize the current
market.
Table 2: Notable Korean manufacturers in the drone ecosystem
Business Manufacturer Note
Complete drones
Hanwha Techwin
Known for: Military drones and weapons systems
Relevancy: The acquisition of Techwin from Samsung gives the company access to next-generation military
technologies in the robotics space
Note: The company has not disclosed information on some of its projects in development due to national security
Korean Air Lines Known for: Airline
Relevancy: Will mass-produce military drones from 2016-2020 under a KRW400bn contract from Korean government.
Note: 95% of the drones’ components will be sourced from Korean suppliers.
Korea Aerospace
Industries
Known for: Manufacturing military and civilian aircraft.
Relevancy: Strong aircraft development competency
Note: Advantage of being an Asian alternative to Chinese makers. Rising geopolitical tension in Asia provides
opportunity for Korean made military technologies
Hankuk Carbon Known for: Composite material production capability. Manufacturing carbon sheets and heat insulation panels.
Relevancy: Co-developing next-generation drones with Israel’s IAI
Note: The joint venture has the potential to become a leading VTOL UAV company
Foosung
Uconsystem
Known for: Tactical UAV systems
Relevancy: Entered commercial UAV space with its unmanned helicopters
Note: Currently focusing on expanding international development partnerships

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How drones work
The advent of consumer grade, commercially viable drones have put the drone market under the
investment spotlight. The industry is new and the market has yet to mature. Given that industry leaders
and legacy manufacturers who have been primarily targeting the defense sector (e.g. Northrop
Grumman, Lockheed Martin, Boeing, and Airbus) have not yet announced or completely entered into
the civilian/commercial sector, the new arrivals have to pioneer drone technology.
The “pioneers” in the emerging industry will be working on improving and evolving every aspect of
drones — ranging from their external frames to onboard electronics.
Investors can gain a better identify, understand, and asses the opportunities that will emerge — as
drone technologies and processes mature and give rise to de facto standards — by understanding “how
drones work”.
#1 Functions of the drone
Prototyping of any new drone begins with the purpose that the
drone must serve. The purpose/function defines several important
parameters for the design and prototyping process of the drone.
For instance, if the drone was designed for aerial cinematography
(videography and photography), then this function will directly
impact:
Payload — The weight that the drone should be able to carry in
addition to its own weight e.g. the user may choose different third-
party cameras depending on their needs.
Battery and flight time — The flight time of the drone, and hence,
the number of recharges that must be made before a shoot can be
completed, depends on how much power the battery can supply to keep the drone and the camera
functional.
Propellers, motors, and ECS —Payload and battery life determines
the size of the propellers and the power of the motors needed to
generate the thrust that will allow the drone to reach the required
heights for aerial cinematography, and to consistently hold that
height. The electronic speed controller plays a crucial role in
efficiently transferring the power from the battery.
Design of the motors — In general, motors consume the most
electric power on an unloaded drone. To increase the effectiveness
of the drone, the motors have to be both light (weight ratio of their weight to the weight of the
unloaded frame) and should minimize the loss of electric power as heat during longer flights
Fig 3: Multirotor G4 4.8 Eagle Cargo — an
autonomous transport octocopter capable of
carrying payloads of up to 5 pounds
Fig 4: Foosung Uconsystem’s TRotor UAV is
used for agricultural applications

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Frame Design — The aerodynamic design of the frame is directly impacted by net payload, different
sub-payloads, and common aerodynamic conditions:
 Net payload — The total weight that the drone has
to carry defines number of motors that are needed,
type of material required for its construction, the
span of the frame, and the reinforcements needed
on the frame.
 Environmental conditions — The example drone is
for aerial cinematography where windy conditions
are expected. Wind creates additional torque and
adds tension on the frame, making proper aerodynamic designs crucial for maintaining the
integrity of the frame.
 Onboard FCS — The available flight controllers define the frame design. If multiple electronic
chips/boards and sensors are needed, then it means that the frame has to be designed to
incorporate them.
Range and radio — Drones can be teleoperated. The range of this control depends on the power of the
radio being used. The range can anywhere from just 100m to 1km, and requires creating more powerful
radio transmitters and receivers.
Design of the controller/ground station — The remote control of the drone,
or a complete ground station (where the data can be sent) is dependent on
the maximum range of the drone, and the amount of information that is
required to complete its tasks. In the case of aerial cinematography, the
ground control station could be anywhere between a simple remote control
to a complete receiver with a downlink for the sensors, and software for
showing current flight path on a map.
Currently, the market segmentation for “types of drones” is rather loose, and
hence, many commercial- and consumer-grade drones are designed to be multi-purpose with the option
of adding different payloads to customize its purpose (e.g. cameras, carriers, etc.). However, over time,
3D printing will result in more drones that are designed to perform specific tasks with increasing
efficiency.
Fig 5: Transwheel is designed to transport payloads via
roads, and work in collaboration with other drones
Fig 6: The AR drone is controlled using a
smartphone

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Below are the individual components that enable drones to work.
#2 Flight controller board
The flight controller board is a small self-sufficient computer that controls all the electronics on the
drone. For instance:
 The ECS consistently sends signals to the controller informing it of the current amount of power
it is transferring to the motors (and hence, generating the right amount of thrust needed to
reach and maintain a height).
 The information generated by the onboard gyro is computed to know the current orientation
and altitude of the drone and hence controlling the ECS to increase/decrease the power and
hence, the thrust until the drone reaches or maintains the required height and orientation.
 The information from the accelerometer is used in tandem with the GPS to know the speed of
the drone and hence calculate the time needed to arrive at a pre-determined location.
Fig7. Workhorse’s HorseFly is an integrated delivery
system. The company already has orders from the
USPS
Fig 8: The Drone Racing League has backing from
several major US investors and looks set to emerge
as a major new sport in the 21
st
century
Fig 9: The new drone that Korean Air is mass-
producing for the Korean military

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 The controller also monitors the battery life, informing the ground station/controller of battery
life, and using data from the GPS and accelerometer to determine the time remaining before the
next charge.
Additionally, the flight controller is also responsible for keeping the drone as autonomous as possible.
For instance, it is nearly impossible to manually keep the drone in a static position and orientation or at
a specific altitude. This is where the controller comes in — it consistently takes and computes data from
all the sensors and re-adjusts the orientation and altitude of the drone by controlling the thrust and
direction of the motors.
The processing power, efficiency, number of inputs, and weight of the flight controllers are propelling
advances in onboard flight controllers for drones.

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#3 Frame
Ultimately, the frame of the drone defines and restricts the
components that can be added to the drone. Even when all the
parameters have been defined, achieving the required
aerodynamic properties and the structural strength of the
frame often requires prototyping multiple frame designs.
Additionally, even when the right frame design is achieved, the
placement of the electrical and electronic modules can affect
the drone’s center of gravity.
The frame has to enclose a wide range of components
ranging from the flight controller and electronic sensors, to
motors and additional features. This highlights the potential
industry for 3D modeling software for developing and
building drones.
It is possible for existing aerodynamic modeling software to
be used for drones; however, the current manufacturers who
own them are giants (e.g. Lockheed Martin and Boeing).
Hence, it is unlikely that the same software can be cost-
effectively implemented or used by emerging startups in the
short term. It is likely that a supporting niche for software for
startups will rise to meet the needs and reduce barriers to
entry in the drone market.
Additive manufacturing is another industry that will most likely
integrate within the drone market due to the use of 3D printing
for creating frames. The technology is already ahead on the
maturity curve than drones, with several consumer-level
desktop printers already available in the market (e.g. 3D
Systems Project 7000HD, Lulzbot TAZ 5, Cubify CubePro, Airwolf
AW3D HD, and Type A Series 1, among others).
3D printing allows faster and cost-effective modeling of
frames, and hence significantly reduces time to market for
new products.
Fig 10: The PhoneDrone is an exoskeleton that latches on
and uses the electronics present in a smartphone, turning
them into drones
Fig 11: 'The ’world's fastest' 3D printed jet-powered
drone took flight in November 2015. Developed by
Stratasys's Aerospace & Defense, it is capable of
reaching 150mph
Fig 12: The Hovership MHQ2 drone’s frame is completely
3D printed

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#4 Motors
Motors are a common engine of choice for powering a drone’s
flight. Connected to propellers, their spinning motion creates
the downward thrust needed to lift and carry the drone into
and through the air. The market for remotely controlled aircraft
has matured, bringing powerful yet lightweight motors to the
drone niche (e.g. brushless DC motors). However, most
consumer drones are “multi-rotor” that take flight vertically and
do not require runways as is the case with most remote-
controlled aircraft.
The Short Take-Off and Landing (STOL) and Vertical Take-Off
and Landing (VTOL) capability of drones make them the
standard choice for almost every niche: their time to flight and
landing is negligible and they are easier to handle and portable to carry.
However, this VTOL capacity comes at a cost: the motors have to be far more powerful and still offer a
low weight: thrust ratio for the drone. This is because remotely controlled aircraft do not solely depend
on the thrust generated by their motors to propel themselves into the air or to remain airborne. They
also leverage aerodynamics and movement of their wings through the air to generate additional lift.
The same is not possible for multi-rotor drones.
Their flight depends solely on the thrust generated by the
combination of their motors and propellers. This has brought a
recent niche of motors under spotlight. These motors are
commonly called 'out-runner' motors. They differ from ordinary
motors because their outer shell is not stationary, and rather, are
connected to the shaft and that spins around the electrical
windings. Traditional motors have a fixed shell and windings
around the shaft. As a result, these motors are capable of
spinning at over 20,000 RPM and consume hundreds of watts
of electrical power.
Fig15: NASA’s GL-10 uses 10 motors to reduce noise pollution
Fig 13: Morrison Innovations nano drone is the
world's smallest quadcopter, demanding motors that
are small, lightweight, and powerful
Fig 14: UVify a startup specializing in the
development of autonomous unmanned drone
technologies, was awarded funding by K Cube
Ventures

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As the market matures, technology for motors is most likely to focus on improving the weight-to thrust
and thrust-to-power-consumption ratios to increase their thrust while reducing power consumption.
#5 Electronic speed controllers
The speed and power of rotation (torque) of the motor is dependent on the amount of power (current
and voltage) that is supplied to it per second. This control is crucial to getting the drone airborne to
everything that has to do with keeping it airborne at a specific height and controlling its direction.
The ECS’s job is to regulate the amount of current that is supplied to the motor. Power depends on
current and voltage supplied at a given time. Although boosting the current increases power, it also
increases the loss of energy as heat (more electrons flow through electrical wiring release more heat),
whereas higher voltage for smaller currents can also create the same power but reduce heat loss.
The ECS exists to balance current and voltage and choose the right amount of current and voltage to
perform a specific task. For instance, starting the motor from scratch (getting the drone airborne)
requires more current, whereas simply increasing the thrust while in air requires sending more power
(which can easily be done with either with 1) more current and less voltage and hence more heat loss;
or 2) less current at higher voltage while reducing heat loss).
The ECS is a closed loop system, which means that it consistently informs the onboard flight controller
about how much power it is supplying at the moment.
Currently, ECSs are a byproduct of the already mature remote-controlled aircraft market. They perform
as effectively as they do on RC aircraft and robots, and we see no foreseeable niche specific to the drone
industry.
#6 Propellers
The design and aerodynamics and choice of material of the propellers
directly affect how efficiently power supplied by the motors is utilized.
The sturdiness and balance of the “props” is crucial for generating the
right amount of thrust, getting the drone airborne, and affecting the
movements.
For example, the direction of the drone is controlled using three
movements — rolling, yawing, and pitching it. Each of these
movement is achieved by reducing the thrust (and hence slowing
the speed of) one or more propellers. This change exerts varying
(and at times inconsistent) amounts of torque on all the propellers. Hence, the design of the propellers
must be in line with the function or the possible uses of the drone with or without a payload.
Fig 16: Hanwha Techwin’s drone features
foldable wings and is one component in the
company’s tech warfare solutions

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Multi-rotor propellers have the advantage of enabling the
miniaturization of drones.
However, as the size of the drones decline, the normal rules of
aerodynamics that are applicable to bigger drones do not apply.
This requires more innovative propeller designs to ensure the
required stability and efficient transformation of power from
motors into thrust.
As a result, we expect a new line of miniature propellers will
take form as the miniature UAV niche evolves.
#7 Dry batteries
The loading capacity and flight time of every drone ultimately depends on its stack of batteries. Liquid-
based batteries are heavy, are inefficient, and unsafe. Hence, drones are dependent on dry batteries.
The problem is that comparatively dry batteries do not generate as much power as their liquid-based
counterparts.
This has been overcome with the use of lithium-polymer batteries and in this area we see LG Chem
(051910: BUY) as a major beneficiary. The biggest advantage of these batteries is their ability to deliver
power in a high energy burst that are crucial for taking the drones to the air and while withstanding
windy conditions.
Currently, motors, batteries, propellers, and drone payload capacity are all directly dependent on one
another for increasing the flight time of the drone.
From the standpoint of power consumption, thrust generation, and hence, loading capacity, even a very
powerful battery requires motors that efficiently transforms the electrical energy it is supplying into
mechanical energy (torque and rotation) with minimal loss of power into heat energy.
From a supply point of view, motors require batteries that can pack in a lot of power and are able to
effectively supply them for a longer time. Additionally, motors depend on the strength and aerodynamic
design of the propellers to effectively convert their rotational power and torque to generate the
maximum amount of thrust.
As the drone industry matures, battery technology will require and possibly see a breakthrough in the
near future.
#8 Radio and wireless technology
The majority of drones (UAVs) are remotely controlled, allowing a ground team to changes its trajectory,
set new flight paths, and to view the data it is transmitting in real-time (e.g. video from during an aerial
videography shoot) and make required changes.
This requires that the drone is connected to a sufficiently powerful radio module that allows two-way
communication between the drone and the ground team.
Fig 17: Hexo+ utilizes six propellers for stability
and control

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The power and effectiveness of the wireless module directly affects the controllable range of the drone.
For instance, if the radio can only send data over 100m, the team will lose control and the drone will be
rogue outside of that limit.
Additionally, the security of the wireless channels is crucial to ensure that the wireless channel’s
frequency band does not overlap other frequencies in the atmosphere.
Currently, the majority of low-cost consumer drones offer basic line-of-sight control and negligible
feedback. However, as the drone’s functions become more complex, feedback and greater radio and
wireless coverage is needed with data ranging from current altitude and heading to battery life, airspeed,
and direction of the drone. Additionally, a robust and secure downlink channel is needed to ensure that
any data from other sensors (e.g. a camera) are sent to the ground station in real-time and at high-
resolutions.
Currently, the wireless technology of the commercial consumer and civilian drone lacks in comparison to
established defense contractors such as Northrop Grumman, Lockheed Martin, and Boeing. However, as
the use and function of drones becomes more complex, we can expect startups and established players
to invest in pioneering long-range wireless technologies for the consumer sector.
#9 Drone accessories
Every additional payload that adds additional functionality to the drone falls under this. This can range
from adding a simple mount-on camera, lighting accessories, or gyro-stabilized DSLR cameras with
motorized gimbals, to adding complete surveillance modules and payload carriers on the drone.
The widespread availability and use of GPS has led to various add-ons that allow the controllers to
create more specific flight paths for their drones, as well as control the flight more precisely from
remote areas.
This emerging market will see tremendous growth going forward. It will evolve as drone functionality
becomes categorical and niche specific. Once that happens, we will see accessories designed for
addressing niche-specific issues.
Classification of drones
1. Large drones
2. Small drones
3. Micro drones
4. Nano drones
Technological evolution of drones
Like with every emerging trend in the field of science, drone technology is evolving at a breakneck pace.
From being just UAVs of yesteryear that were used for simple aerial surveillance by the military and
other authorities, the technology of the present day has allowed drones to be much more. They are
becoming smart devices, with the ability to analyze data and make decisions based on it. And the future
has great things in store for this field. As microcomputers get smarter, so do our drones.

21
But it is not just the brains. Aerodynamics and battery technology also play a huge role in how efficient
the drones of the future will be. And just like semiconductor technology, there is still a vast amount of
research going on in the latter two fields which is being employed into drones. This is reminiscent of
how airplanes took the world by storm after the Wright brothers made their first flight. Drones are going
through a similar phase and we expect to see many opportunities arise from this equation.
New drone technologies
1. Data analytics
One of the fields that has greatly benefited from drones is data collection and analytics. They
are extensively being used in the construction field for conducting thorough analysis of ground
structures from all angles, something that was extremely difficult to do before. With drones, it is
now possible to take to the point measurements and carry out minute adjustments in
architectural design, on the spot. Drones are also being employed to collect mapping data and
for navigational purposes. They have also helped a lot in the scientific study of natural
phenomenon such as volcanic eruptions, landslides, and sinkholes.
2. Technology fusion
If there is one thing that amalgamates so many different technologies into itself after
smartphones, it is drones. Like previously mentioned, a drone is not just a miniature remote
controlled airplane with a camera attached to it anymore. It is a fusion of mobile, aerospace,
material, electronics, and instrumental engineering. And it is only with each of these
technologies working hand in hand, that we have been able to achieve so much in such a short
time.
3. 3D printed drones
Much like drones, 3D printing is an inexhaustible field unto itself and has made immense
contributions to the advancement of drone culture as well. A developer no longer needs to be a
material engineer or aerospace expert to know what material or shape the wings should be. You
download the blueprint, make your adjustments, and hit print and you have a drone ready. And
with future advancements in 3D printing technology, making drones is going to be even cheaper
and easier.
4. Jam-proof communications
Being reliant on radio waves for communication, drones are prone to jamming devices just like
any other electronics that use a part of the electromagnetic spectrum to send and receive
commands. And with the increased security threats posed by drones being so readily available;
this may be a good thing. However, there are a few cases where we need drones with jam-proof
technology, for example in areas with high electromagnetic interference, or terrorist facilities
with jammers installed. For this reason, research in this field has been going on for some time by
the organizations such as DARPA and NASA.

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Air, land, and water — a movement towards biomimetic drones
As drone technology continues to evolve three defining aspects of the future of a matured and
consolidated drone industry have become apparent: the need for faster, agile, and responsive drones.
A prominent trend in achieving all of these has been to look towards nature and learn, develop, and
implement technology that allows drones to become more maneuverable, faster, and easily controllable.
This has led to the interest and development of biomimetic drones — robots that look and act like
animals. Prominent examples of such drones are shown in the table below.

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Medium Name Description and details
Land
StickyBot Inspired by the gecko, and developed at Stanford University, the drone is able to walk
on any smooth surface (acrylic, tiled walls, glass, etc.) using dry directional adhesives.
Water
GhostSwimmer A project of DARPA, the GhostSwimmer is an underwater drone whose design takes
inspiration from the Bluefin tuna. Capable of swimming at depths of up to 300 feet
deep, the drone is primarily aimed as a spying drone for assisting marine personal in
completing missions.
Hydroswarm Hydroswarm is smart drone platform for underwater exploration.
The platform allows autonomous drones (Eve) to remain under water and collaborate
with other Eve drones in collecting data and uploading it to the cloud.
Air
DALER The Deployable Air-Land Exploration Robot (DALER) is inspired by the natural agility
and design of a vampire bat. The drone relies on flexible flapping wings to fly like a bat
and claws for latching on and climbing/walking across walls, allowing it to be deployed
across versatile conditions and terrains.
NAV Designed by DARPA, the Nano Air Vehicle (NAV) is a six-inch robotic hummingbird
capable of relaying videos to its ground station/operating-pilot in real-time.
Festo SmartBird Capable of autonomously starting, flying, and landing, the Festo SmartBird is an
ultralight and agile sUAV which is inspired by and resembles a herring gull.
Bionic Bird Resembling a black finch and controlled through an app, the Bionic Bird targets the
B2C market space.
BionicOpter BionicOpteris a fully functional robotic dragonfly. Like a real dragonfly, it can fly
forwards, backwards, hover, and fly sideways. Its introduction is another step forward
in robotics engineering.
Table 1: Evolution of drone technology: Emerging biomimetic drones

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IoT and drones
The Internet of Things is a phenomenon that is rapidly evolving. Drones are a core component of the
Robot Internet of Things (RIoT), which incorporates the actuators, the components that can alter our
world, affecting the environment rather than simply analyzing it.
Drone technology and RIoT are technologies that are shaping our generation. The RIoT consists of
technologies that can make devices smart. What we mean by smart is that devices such as thermostats,
refrigerators sprinklers, or cars are being connected to the Internet so that they can receive, deliver, and
act on data.
For example, an elevator equipped with sensors can detect real-time failures and instantaneously alert
the designated support teams. This process has multiple steps and starts with the data being
transmitted from the elevator to the cloud, and ultimately to a monitoring facility. It then triggers a
response from a maintenance facility to a technician so that he/she can provide support and attempt to
fix the issue. Similar cases can be demonstrated in retail shopping, children’s car seats, traffic lights, or a
variety of other scenarios.
This technology that captures the data, analyzes the data, and generates feedback, provides
unprecedented real-time capabilities. This is made possible by the creation and convergence of current
cutting-edge technologies.

25
Fig 17: RIoT system in agriculture
Non-military uses of drones
As commercial drone technology evolves, and as stable flight and robust onboard collision avoidance
systems become more consumer oriented (more compact and cost-effective), the use cases for drones
are rapidly maturing and moving towards targeted and specialized video footage and package delivery
systems.

26
Prominent non-military use case scenarios and application opportunities for drones include:
1. Target tracking
Inexpensive drones have replaced the previously used choppers that allowed government
agencies to keep an eye on persons and areas of interest.
2. Weather research
Drones are rapidly replacing weather balloons for recording weather forecast data. Their main
advantage is that they can be remotely navigated to study weather patterns over several
locations unlike balloons that stay in a single place. They can also transmit weather data in real
time.
3. Communications and media
Increasingly used by journalists, photographers and filmmakers, every day new drones are
showing up in the market, some incorporating the latest innovation in camera technology like 4k,
360 degree aerial recording, and high framerate video shooting.
4. Wildlife monitoring
Similar to target tracking used by security officials, wildlife agencies are using drones to keep an
eye on animals in their habitats inside reserves to ensure their well-being.
5. Mining
Drones are used not only in oil and gas exploration, but for scouting out other natural reserves
as well. They are also used to ensure safety of workers inside mines and for rescue purposes in
case of a collapse.
6. Agricultural applications
Drones are replacing expensive tractors and aircraft on farms for spraying crops with fertilizers
and pesticides. They are also used for monitoring the growth of crops and ensuring there is no
problem with the plantation.
7. Infrastructure monitoring
The use of drones in infrastructure starts from the planning phase and goes on until after
project completion. During that time, they are employed to carry out a number of tasks and
analyses.
8. Traffic monitoring
Drones are a good way to unobtrusively monitor traffic conditions, as they hover over
everything and do not disturb the traffic. Having an aerial view of the entire area gives them an
added advantage and the traffic data analyzed can be used to prevent jams and for future road
construction plans.

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9. Disaster response
Again, having an aerial view puts them at an advantage over other forms of travel as they can
directly fly from point A to point B without any obstructions in their path. They are mainly used
for pinpointing survivors and bringing medical supplies to inaccessible areas as well as a means
of communication.

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Industry trends
Robotics is a revolutionary technology that is changing the world in ways that will create massive
socioeconomic disruptions. Robotics is the latest major technological shift, and like fire, the printing
press, and electricity, will bring forth an array of new questions, concerns, and challenges for that will
reverberate throughout the world and beyond.
The shift that robotics and drones are bringing to the world is far larger and deeper than any previous
shift. Much like the development of the atomic bomb, nobody would have forecast that it would bring
the second-order effect of creating the cold war. Nor would most have predicted the third-order effect
of creating a space race that would take humanity to the moon and beyond. This in turn brought about,
according to P.W. Singer in his book Wired for War, a fourth-order effect of creating a generation of
sugared-up kids drinking Tang every morning like the astronauts.
These shifts are not just ripples in the evolution of modern civilization — they are tsunamis. The robotics
revolution will be the biggest wave to sweep the world and with it will new islands of domination and
territories be carved out in business and politics.
Noteworthy developments in the drone market
Ford and the transformation of automotive industry into a “Transport and Mobility”
industry
Ford, the automotive industry giant and pioneer has clearly indicated that its future will be filled with
self-driving cars and drones.
Ford’s CEO Mark Fields stated that new ideas —drones, apps, autonomous
cars—“could move to the core” of the automaker’s business someday.
The automotive industry could soon reach a standstill as the industry’s core
goal of “a car in every garage” is both unsustainable and unviable. As a result,
Ford is moving towards becoming a mobility and auto company, and we
expect drones to become its core business because. This will
significantly change its current business model, and hence of that of the
auto industry in general. The result will be a tectonic disruption and
expansion of a saturated industry.
EHang unveils drones for personal use
Forget flying cars, there is now a drone you can take a ride in. Ford is moving towards the drone industry
for a good reason: it may become the future of transport, and EHang, the Chinese drone company is
already on the move.
The company unveiled an electric autonomous drone at CES 2016 that is capable of transporting a single
passenger.
Fig 18: Ford’s 'Ultra Puck', a sensing platform
that will help with real-time, 3D mapping in
driverless cars, and later, perhaps with its
autonomous drones

29
Capable of carrying a payload of 220 pounds, the personal autonomous
aerial vehicle is powered by electricity. To get from point A to point B, a
passenger simply enters their desired location into the smartphone app
and the drone does the rest of the work.
The drone may disrupt the existing transport industry but also the
defense and commercial market space.
Google and Amazon to combine resources in managing air
traffic
The US is currently the biggest market for drones, and figuring out how to efficiently and safely manage
drone traffic over its airspace is crucial to the drone-based service industry Amazon and Google are
trying to pioneer.
Currently Google, Amazon, and almost every stakeholder in the emerging commercial drone market are
working together with NASA and the FAA on their Unmanned Aircraft System Traffic Management (UTM)
project.
Although, both Google and Amazon agree on creating a “loose framework” that does not straitjacket the
industry and possibilities of rapid growth, each has a differing outlook on the technological needs for the
management system.
What Google basically wants is an automated version of the air traffic control (ATC) system that already
exists today. According to the existing ATC requirements, all flight operations have to be scheduled prior
to the flight through a centralized control system.
Amazon, at CES 2016 argued for a collaborative sense-and-avoid system that prioritizes the ability of
drones to see and avoid each other and any other airborne objects (birds, balloons, kites, etc.) and
hence less focused on a central command-and-control structure.
Collaboration between the two will significantly boost the development of the drone airspace needed
for the emerging market.
Intel Capital invests in Yuneec
Intel Capital’s investment of USD60mn in the Chinese
drone startup Yuneec shows the potential for the rising
demand and acceptance of drone technology. Intel sees
drone technologies as an avenue for deploying onboard
processors and hence its energy conservative chips.
The two will co-develop future products.
Yuneec manufactures over one million radio-controlled
aircraft a year. In the drone sector, it is known for its
Fig 20: Intel CEO Brian Krzanich and Yuneec CEO Tian Yu as
Intel Invests USD60mn
Fig 19: The EHang 184 weighs 440 pounds and is
capable of carrying over 220 pounds

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ready-built/ready-to-fly drone series “Typhoon” that offers sophisticated aerial photography tools.
Intel’s investment shows a strategic move: drones are built on self-sufficient chips. The move is strategic
and is geared to bring Intel’s RealSense three-dimensional image capture technology onto drones4
.
Fig 21: Intel’s RealSense is being used on several commercial drones.
Source: Company data, HMC Investment Securities
Yuneec Electric Aviation is not the only one. SZ DJI innovations also received USD75mn from the Silicon
Valley VC Accel Partners, and 3D robotics has received USD64mn in funding.
Intel introduces its autonomous robot at CES 2016
Intel unveiled a hoverboard that transforms into a personal
robot, making a statement about its movement beyond just
chips and into the domain of drones and developing the
processing power needed to target them.
The robot's tech is open platform, meaning anyone can build
on it. The robot features voice recognition and streaming
video via an Intel RealSense 3D camera, which also helps it
maneuver around obstacles. The robot's developer release,
expected in 2H16, will allow developers to create new uses
and applications for the robot.
The unveiling comes a day after Intel said it would acquire Ascending Technologies, a German drone
maker that builds drones for professional and research tasks like surveying, industrial inspections, or
aerial photography.
Working with Ascending Technologies, Intel has also developed a collision avoidance system that allows
the drone to navigate around any obstacle.
The importance of the strategic move is evident from Intel’s CEO statement at 2016 CES "we believe
this is the beginning of a new ecosystem, one where robots can actually be open platforms and
become useful partners," a clear indication that the processor giant was developing a separate line
of chips and components targeting the RIoT ecosystem.
4
http://www.intel.com/content/www/us/en/architecture-and-technology/realsense-overview.html
Fig 22: Intel Segway robot

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Current lineup of best drones are consumer B2C drones
The CES 2016’s best drones brought to fore the disruptive demand of consumer focused aerial drone
applications. As a result, Phantom 3 4K, Typhoon H, Parrot DISCO, and Lilly Camera were selected as the
best drones for the year.
Phantom 3 4K
The Phantom 3 4K drone is DJI’s upgrade to its lineup of UAVs,
indicating the viability and popularity of its technology,
assessment of needs and targeting the lucrative market niche for
aerial photography. As the appetite for faster drones and higher
resolution cameras increases, DJI is set to increase its market
share.
Typhoon H
A direct challenger to DJI’s Phantom 3 4K, the drone has a 4K CGO3+ camera and is able to capture
12MP images thanks to the 360-degree gimbal camera. Additionally, the drone packs Intel's RealSense
technology which means that it can avoid collisions.
This points towards two powerful developments:
1) The untapped potential of consumer needs in the aerial
photography niche.
2) The realization that disruptive advances can be made
with existing technologies without innovating
technologies from scratch. This paves way for finding
and leveraging partnerships with other manufacturers.
Parrot DISCO
Parrot’s DISCO is a ready-to-fly, fixed-wing drone, shows that
multi-rotor drones are only one option for targeting B2C
consumer needs.
Launching the DISCO into the air is simple — simply turn it
on and throw it into the air. One need not have any prior
experience with drones if flying the 700 gm DISCO as it has
an autopilot mode.
Lily Camera Drone
Winner of the CES 2016 Innovation Award, the Lilly Camera is simply a solid camera capable of following
and tracing its user-on-the-move. Weighing 2.8 pounds, the small drone clearly shows that a diversified
consumer base exists even within the aerial filming niche.
Fig 24: Typhoon H leverages existing technologies
from Intel to create a superior user experience
Fig 23: The Phantom 3 4K is testing and targeting
new opportunities in the market niche of consumer
aerial photography
Fig 25: The Parrot DISCO shows that the aerial
film/photography niche that is dominated by multi-rotor
copter design will be further be diversified

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However, the competition in the auto-follow domain is stiff;
with other contenders include the Hexo+, 3DR Solo, and the
pioneering AirDog, among others.
This is apparent as the Lilly Camera is also competing with
Airdog, the autonomous auto-follow aerial photography and
filming companion.
A pioneer in the autonomous, auto-follow drone technology,
Airdog allows the user to readily deploy the drone in the air
without any prior experience in piloting drones. This offers
opportunities for consumers to put it to use filming their
adventures and journeys.
Rising demand for “easier” drones in the defense sector
Northrop Grumman was awarded a USD93.1mn contract December 24, 2015 as part of DARPA's
Tactically Exploited Reconnaissance Node program, which aims to enable drones to operate from
smaller ships.
The aim is to make drones portable and readily deployable on existing “small-deck naval maritime
vessels”. Traditionally, fixed-wing unmanned aircraft have posed "substantial financial, diplomatic and
security commitments," because they required large aircraft carriers or dedicated bases. Northrop
Grumman is contracted to enable the naval fleets the ability to deploy drones in operations that offer"
robust, affordable, and highly flexible unmanned intelligence, surveillance, reconnaissance, and strike
capability,"
Northrop Grumman, already an established defense contractor, will provide the new seaborne drone
system that combines vertical takeoff and landing with the ability to fly long distances like fix-winged
drones.
Disruptive technologies in micro drones
Mirko Kovac, Director Aerial Robotics Laboratory claimed
“we want to create machines that can live autonomously,
building nests, repairing each other and reproducing
within their own ecosystems.” This clearly indicates the
direction the research teams in the industry have taken
towards the emerging drone technology.
With more research into miniaturization of drones, the
industry gains lighter, and more powerful components for
use with drones. Pioneering manufacturers and
developers will gain competitive advantage as lighter
sensing and computing payloads increases the flight time
of drones.
Fig 26: Lilly Camera leverages the consumer need for
simplicity in both design and ease of use
Fig 27: A jumping robot created at the Swiss Federal Institute of
Technology. It was inspired by grasshoppers and can jump up
to 1.4m, 27 times its own height

33
Gesture control technology for drones
Gesture control technology is also gaining traction. Recently, PVD+, a startup based in Taiwan has
announced their new gesture recognition engine, the "Dong Core".
The software enhances the capabilities of drones (among other third party accessories and automation
devices) to be controlled using hand gestures. As the startup matures, it will most likely catch the eyes
of bigger, established players in the industry.
NASA develops new traffic management system
Drones are becoming more consumer-oriented and commercialized because of the rise of the IoT and its
evolution in the RIoT, where connectivity across sensors has made it possible to create ever smaller and
more powerful drones.
The problem with UAVs roaming the skies is clearly
problematic. Consumers are concerned with how the
proliferation of these technologies from the sky can affect
their life on the road.
NASA has already started testing and developing its air
traffic management system for drones5
.Additionally, as
insurance companies take on a more prominent role in
creating insurance plans for drones, entry into drone
sector has become less risky than before. AIG is started
selling insurance6
for drones for businesses using UAVs.
5
http://utm.arc.nasa.gov/index.shtml
6
http://www.aig.com/unmanned-aircraft_3171_659651.html
Fig 29: A test pilot operates a virtual large UAS at a
NASA research ground control station
Source: NASA, HMC Investment Securities
Fig.28: PVD+’s Dong Core uses gesture tracking to control drones

34
The intention is to capitalize on the adoption of drone technologies for business uses.
According to the AUVSI if the Federal Aviation Administration (FAA) manages to integrate its UAS within
the US’s the national civilian airspace (the deadline being 2015), the net economic impact of the drone
industry could easily reach USD82.1bn by 2025 — creating over 100,000 high-paying jobs within the
drone ecosystem.
The AUSVI estimates that by 2025, 160,000 drones will be sold every year7
.
The current apprehension of all regulatory authorities is their inability to readily track, monitor, and
manage the “grey airspace” that drones occupy. With the development of a robust traffic management
system for drones, the current regulatory deadlock will be broken, speeding up the process of creating
the needed, standardized framework for managing the air space for drones.
Qualcomm Robotic Accelerator backing 10 robotics startups in the drone industry8
Qualcomm9
has manufactured efficient chips for drones and Yuneec will be the first one to use it.
Qualcomm’s latest processor, the Snapdragon Flight board is a complete onboard flight control system
for drones. The advantage is that in general multiple boards, components were needed to manage flight
control, FPV (first person view) video and high definition recording. Qualcomm has combined them on a
single board, significantly reducing the weight and hence increasing the flight time of the drones.
With established manufacturers and technology pioneers stepping in to support emerging startups, the
chance of failure is low. This increases stability in the already disruptive emerging RIoT ecosystem for
drones and drone technology.
7
AUSVI [REPORT] http://www.auvsi.org/auvsiresources/economicreport
8
https://www.qualcomm.com/news/onq/2015/07/16/qualcomm-robotics-accelerator-backs-10-robotic-start-ups
9
http://www.networkworld.com/article/2984656/mobile-wireless/intel-qualcomm-investing-in-drones-uavs.html
Fig 30: Qualcomm Snapdragon Fight drone dev board

35
Drone insurance
Technology is barreling ahead at such a rapid pace that it is creating new emerging insurance coverage
issues that were not contemplated when policy language was originally drafted. It is now up to the
insurance industry to keep up. There are a myriad of complex liability and coverage issues which are
further complicated by complex operational, procedural and technological challenges. The potential
commercial usage of drones in the skies have sent the regulatory bodies such as the FAA in the US and
Transport Canada scrambling, as the commercial market is chomping at the bit to launch their
respective businesses.
In sync with the regulators, some insurance carriers may be looking to develop policies to cover
insurance exposures presented by these small unmanned aircraft, yet there is little clarity or guidance in
this area. For example, very few commercial farmers have obtained a Certificate of Authority to fly
drones, yet it appears US laws and regulations managed by the FAA will eventually require FAA
permission for the non-recreational use of drones.
Nonetheless, toward the end of 2013, for example, certain insurance carriers began writing coverage for
customers utilizing drones. Coverage is endorsed onto an existing P&C policy. Most of the drones are
valued at less than USD5,000 and coverage is currently for general liability only.

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The drone market space
Currently, the drone market is rapidly evolving, making it difficult to accurately forecast how the
emerging technologies and new entrants will affect the market space in terms of throughput and
revenue. However, certain forecasts can be made using available data.
The utility of drones for commercial applications will drive growth
in the commercial UAV section, with shipments increasing from
80,000 units in 2015 to over 2.6 million units/year by 2025. This
should generate USD4bn in revenue from drone hardware alone.
Furthermore, the drone market will grow at a compounded
annual growth rate (CAGR) of 19% in the next five years taking
shape primarily around seven core industry sectors — energy,
construction, real estate, utilities, agriculture, mining, and film
production.
Alternative sources also suggest that the market space for drone technology will grow from USD3.6 bn
in 2014 and is anticipated to reach USD16.1 bn by 202110
. This is in terms of six identified market leaders
and 35 market participants prominent in sustaining the value chain and hence the drone ecosystem.
The most lucrative opportunities currently available in the drone-enabled services are in the commercial
sector, which are forecasted to generate USD8.7bn in revenue
annually by 2025.
Service industry will thrive on the B2C applications that
manufacturers are targeting, e.g. drone racing, autonomous
follow-me filming, delivery services, etc.
Currently, the US serves as the established market leader in
small Unmanned Aerial Systems (sUAS), and which will target
the fast-growing B2C consumer market. The US’s market in
sUAS is expected to surpass USD8.4bn in revenues by 2018, and
will dominate the UAV market with revenues exceeding
USD5.1bn — becoming at least 2.3 times bigger than the
civil/military market, and roughly five times larger than the
hobby/prosumer market.
10
Drones: Even Trains and Planes Use Remote Control Like Drones, Market Shares, Market Strategies, and Market
Forecasts, 2015 to 2021. Web: http://wintergreenresearch.com/trains_planes_and_drones
Fig 31: The global market will initially grow around
seven core industry sectors — energy, construction,
real estate, utilities, agriculture, mining, and film
production
Fig 32: The US to lead the sUAS drones market in
terms of consumption and production, becoming
at least 2.3 times bigger than its civil/military
market

37
UAS sales in US during 2015 amounted to USD3.3bn in net revenue from sales of drones for commercial,
civil, and military applications, 3.8% (USD125mn) was from sales in commercial and civil applications.
The market should grow to USD4.3bn by 2020, generating under 10,000 jobs, allowing entrants to tap
into a budding and competitive talent pool of resources.
When non-consumer/civilian applications and segments for the drone are included, the market is
reaches USD27.1bn by 2021. These segments include US Homeland Security, law enforcement, border
patrol, in addition to aerial cinematography, package delivery, oil and gas, agriculture, and disaster
response.
Although each forecast considers different variables and generates different forecasts, all of them point
to the maturity of drone technologies and the market space, the reduction of barriers to entry,
increased competition, and the exponential growth of the industry.
To further gauge and understand the opportunities, start by taking into account
the startups in the industry instead of established manufacturers
Why?
Because startups are far more agile and hence are more responsive to the changing market needs and
are flexible enough to rapidly respond to the new market needs and opportunities. They are more
innovative, and hence major manufacturers will leverage one of three opportunities:
 Backing them through funding
 Acquiring them
 Strategically partnering with them
We will start with an overview of the current startup space for drones.
Startup funding in the drone market
The drone market has already broken through the
ceiling. Drone startup funding in 2015 YTD was up 61%
YoY, allowing startups to raise USD172mn well before
3Q15.
3D Robotics, a UAV developer and manufacturer led
the funding spree. It has been backed by investors such
as Qualcomm, Maveron, Foundry Group, and O’Reilly
AlphaTech Ventures, raising USD99mn in funding. Fig 33: Drone startups raised a record USD107mn in 2014
Source: CBI Insights, HMC Investment Securities

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Other prominent startups include DJI
Innovations, the largest global drone
manufacturer who raised USD75mn, and a
recent valuation of USD10bn valuation from
Accel Partners. Accel Partners and DJI are in
the process of establishing a USD10mn joint
fund to invest in a new drone technology
called SkyFund.
Airware, a technology provider that develops
drone operating systems and enterprise level
drone technology raised over USD40mn from
First Round Capital, Andreessen Horowitz,
and Felicis Ventures.
There are only 10 drone companies who
have managed to raise USD10mn or more, and are in the limelight for future developments in the global
commercial UAV market space.
The emerging global drone market
In summary, commercial drones will lead the growth of the world drone market in the next five years. In
2019, revenue from the commercial drone segment should overtake that from the consumer segment.
While multi-rotor drones will remain as the largest drone type from 2014 to 2020, fixed-wing
alternatives should grow at the highest rates among drone types.
The key challenges are the regulatory restrictions on drones which are anticipated to be eased in 2017,
resulting in a boom in the world drone market from 2018, especially in the commercial drone sector.
Understanding the key challenges
Regulations
In mid-December, the FAA issued an interim final rule establishing registration and marking
requirements for small unmanned aircraft used recreationally – i.e., drones. Like other drone owners,
owners of drones that weigh between .55 pounds and 55 pounds must register their drones before
operating them in the national airspace. But for these small non-commercial drones, the rule creates a
system in which drone owners can register their drones online and pay a USD5 fee. In the first two
days that the site was up, 45,000 people registered. Owners must also mark their registration numbers
on their drones. The expectation is that the FAA will work with local law enforcement to enforce these
rules.
Yet the FAA concedes that laws related to state and local police power, which includes zoning, privacy,
land use, and law enforcement operations, will not be preempted by federal law. For example, the FAA
Fact Sheet accepts that laws prohibiting drones from being used for voyeurism or for hunting; would be
acceptable.
Fig 34: The five most well-funded startups in the market include:
Airware, 3D Robotics, XAirCraft, SkyCatch, and Cyphy

39
Drones and the business world
How drones are transforming the business world
It is not often that a technological trend completely revolutionizes the business world. The last time it
happened was with the advent of smartphones. And now, it is happening again, with the mainstream
availability of cheap commercial drone technology. Everything, from personal security to medical
science, has been affected in one way or another with this new technological trend.
Industries being revolutionized by drone technology
1. Logistics
Drones have found great use in logistics. Recently, many retail and courier services are
increasingly planning to make use of drones to carry out deliveries right to the customers’
homes. This is not only much faster; it eliminates the need for personnel and delivery vehicles;
and prevents shipment damage. Some really big names in the industry like Amazon and DHL are
experimenting with this idea.
And it is not just finished goods and retail items. Drones are being used to transport raw
materials and equipment to construction sites, as well as for humanitarian aid by delivering food
packs and medical supplies to the needy.
Fig 35: DHL drones being tested in Europe
2. Security and monitoring
This was the original intention behind the creation of the world’s first drone, and to date, it
remains one of its most popular uses. The first UAV took intelligence warfare to another level by
allowing the military to see directly behind enemy lines. From there on, drones evolved into
weapons and into what we see today. Today, police forces around the world are employing

40
drones to ensure law and order, maintain peace, as well as to have an eye over the public. They
are also used by private security firms for security planning and surveillance.
Fig36: Foosung UCONSYS’s RemoEye-006
Fig 37: Israel Aerospace Industries (IAI) partnered with Korea’s Hankuk Carbon to develop and produce a VTOL drone
3. Journalism and photography
With drones becoming mainstream and affordable, it has come as a blessing in disguise for
journalists and photographers. Now, no longer do they need to risk their lives or invest in
expensive equipment to get that exclusive footage or photograph. But it is a two-way road as
drones have also created increased interest in citizen journalism and given hobby photography a
tremendous boost.

41
4. Farming and agriculture
For almost two decades, the use of sensors, data analyzers, and GPS have been a standard
phenomenon in agriculture and farming. This new practice is known as precision agriculture,
and the information collected, previously mainly gathered using tractors during the course of
planting of seeds and while harvesting of the crops; was studied by farmers and used to get a
better understanding of the field and make informed decisions for the future.
But recently, more and more farmers and agriculture-equipment dealers are gravitating towards
unmanned aerial devices, more commonly known as drones or UAVs. They employ these
devices to get aerial shots and other data related to the fields. The main advantage of this is that,
unlike tractors, which can only be used twice, during plantation and harvest, a drone allows for
the monitoring of crops throughout the season and quickly address any problems found on spot,
before any further deteriorating to the crop can take place. And drones are far most cost
effective when compared to traditional aircraft.
5. Delivery and errands
With drones being so affordable, they are being increasing used by the general public to carry
out deliveries or run errands they are unable to carry out themselves, either due to
inaccessibility of transport or due to security concerns.
6. Disaster management
Drone technology is increasingly being deployed in disaster-ridden areas for saving lives. In
places where the topography becomes increasingly difficult for medical staff to reach the
affected people, drones have come to the rescue. They have been used in earthquakes and fires
to pinpoint survivors trapped inside structures, and to deliver aid and medical supplies.
The future of drones
With so many advancements happening in this field, as well as its branch fields that have a direct impact
on how drones are designed, for example, battery technology, there is a lot more in store for drones
going forward.
Drones have become an essential part of militaries’ efforts to combat terrorist activity around the world
and, new technology will allow surveillance flights and drone strikes to be launched globally from the
hundreds of existing "small-deck naval maritime vessels," which include guided-missile destroyers and
littoral combat ships, according to Northrop Grumman.
The new seaborne drone system will combine VTOL with the ability to fly long distances like fix-winged
drones and provide highly flexible, robust and affordable unmanned intelligence, surveillance,
reconnaissance, and strike capability, according to Northrop Grumman.
The future of drones and other robots, indeed for the RIoT ecosystem lies in autonomous systems.
Consumer drone leader DJI has announced an autonomous drone for the consumer market available for

42
purchase from March 2016. This marks an important step in the RIoT system and we expect to see other
companies accelerate their development of autonomous systems and machine vision technologies in
response to DJI’s move.
Forecast for the civilian drone market
Even though there has been a tremendous growth in the market for civilian drones, it still pales in
comparison to commercial demand. Drones are still mainly used as tactical military devices, first and
foremost, with usage in mapping and as an aerial imagery tool following closely behind. However, unlike
the commercial drone market, which has had some time to mature, the civilian drone market is still in its
infancy, and with so many startups specifically focusing on the impact of drones on consumers, they
have forecasted as much as a 300% increase in civilian drone interest in the coming years.
And it is not just startups. Ford Motors announced its plans of getting into the civilian drone game. It has
partnered with China’s DJI, to sponsor a software development competition that will allow drivers to
control a drone, right from the dashboard display of a Ford F-150 pickup and observe what is happening
in real time.
Right alongside Ford and DJI were Intel and Yuneec with their collaboration, the Typhoon H drone, to
rival Phantom. Intel is also looking to secure a position in the RIoT market with its processor-designing
capabilities and RealSense3D camera imaging technology, which it believes will stimulate innovation in
the consumer drone market.
Fig 38: Renault’s concept car Kwid has a built in drone to check for gridlock.
Source: Company data; HMC Investment & Securities

43
Conclusion
Drones come in a variety of shapes and sizes. Your average DYIer or drone enthusiast might be more
familiar with a quad copter, while for a law-enforcement official, drones are valuable surveillance
devices.
Both of these are much lighter than their military counterparts, and are generally battery powered as
opposed to the jet fuel used in tactical drones. They are also very limited, in that they last somewhere
between ten and forty-five minutes on a single charge and do not have much range or high-altitude
flying capability.
Street cameras are reasonably inexpensive as well. But drones are mobile, and may come equipped with
the capability to do more than record video and audio. Drones could detect if people are armed, for
instance, pinpoint and even intercept electronic communications, generate thermal images, or detect
chemical signatures such as that given off by illicit drugs. It would be prohibitively expensive to put each
of these sensors on every street corner, but not necessarily to fly one or two sets of them around a city.
It should be noted that few unmanned aerial systems have these capabilities today, but some do, and
the US Department of Homeland Security is acquiring more.
Korea’s top drone plays
Hanwha Techwin
Why? The company has a high-level view of the RIoT ecosystem for the defense sector. With connected
security devices, military hardware, and aerial and ground robots Techwin is well positioned to be a
major player in the emerging RIoT ecosystem.
Korean Air Lines was awarded a government contract in 1Q16 to develop drones for the Korean military.
This should tremendous growth opportunities for KAL and related domestic component makers as 95%
of its components will be sourced from domestic manufacturers.
Hankuk Carbon will form a form JV with Israel Aerospace Industries (IAI) to develop next-generation
vertical takeoff and landing (VTOL) drones. The JV will aim for 90% “domestic localization in Korea. IAI is
one of the world’s premier military drone builders and we view the alliance as a vote of confidence by
the company in Hankuk Carbon’s technical prowess.

44
Unmanned Solutions (Not listed)
Developing algorithms for autonomous systems as well as building new surface, sea, and air robots,
Unmanned has a good picture of the RIoT ecosystem and should benefit from partnerships with key
players in the transportation space.
UVify (Not listed)
UVify focuses on building drones and machine vision systems for drones. The company is well positioned
to benefit from the growing interest in drone racing as a spectator sport.
Understanding the value chain
Understanding the evolving ecosystem of drones — including manufacturers (established and startups),
vendors, resellers, and value-added service providers.
 Identifying the investment opportunities in manufacturers
 Identifying the investment opportunities in vendors
 Identifying the investment opportunities resellers
 Identifying the investment opportunities in value-added service providers
Key providers of drone technology
- Military drone manufacturers
Continuing the trend from last year, the US remains the biggest manufacturer, and user, of
military tactical drones.
- Consumer drone manufacturers
China has become the leader in the consumer drone space with the US ranked second.
- Commercial drone manufacturers
The US takes the lead in this one by a wide margin. Be it military drones, or drones used by
health care, construction and logistics industries, American-made drones lead in terms of total
value.
Worldwide drone market development
- US
The US is where the drone culture started and has flourished the single biggest drone market in
the world, paling all other markets in comparison. It has seen tremendous growth over the years
and analysts have predicted that the market will grow manifolds in the coming years.

45
- Korea
Korea has several established companies and startups that are poised to benefit from the
growth of the drone part of the evolving RIoT ecosystem. Recent government initiatives and
partnerships will also hasten the growth of Korea’s drone and drone component manufacturers.
- Israel
Israel is increasingly making use of military drones, most of which are made locally. Unlike other
companies around the world, Israeli drone manufacturing companies have kept their focus on
military technology. This has made Israel one of the world’s biggest suppliers of tactical and
surveillance military drones.
- France
France is rapidly emerging as the largest consumer-based drone manufacturer after China. Their
Paris based company, Parrot, is a household name among drone photography enthusiasts, and
has a stake in many other drone technology companies worldwide, for example the Swiss
senseFly and Parrot US and Korea.
- Germany
Germany has also become a big producer of both military and recreational drones. Furthermore,
many foreign manufacturers from Korea and US have set up their plants in Germany to cater to
the EU market demand for commercial and consumer drones.
- China
Shenzhen-based DJI has become the largest distributer of consumer drones in the world and
has a huge fan base following among drone enthusiasts, photographers, and movie makers.
- Japan
- Many Japanese auto and airplane design companies, like Mitsubishi and Honda are all set to
enter the drone market in the coming years. Sony recently announced a global 3D mapping
enterprise system in partnership with 3D Robotics.
Who is manufacturing drones?
1. The Boeing Company
Boeing has had a hand in the drone market for a number of years, mostly developing them for the US
military. They have more recently been testing the hydrogen-powered Phantom Eye drone, which
Boeing states, can stay at 65,000 feet for up to four days without refueling.

46
2. General Atomics
The San Diego based company is credited with building the Predator drone, the much-feared aircraft
that saw action way back during the Balkans war, where the Americans lost two of them. Since then, it
has been deployed in Afghanistan, Pakistan, Iraq, Yemen, Libya, Somalia, Iran, and the Philippines. Last
year, the company signed a deal to supply USD197mn worth of drones to the UAE. In 2012, the company
brought in more than USD652mn in revenues.
3. Lockheed Martin Corporation
Like Boeing, Lockheed is testing a drone -- the Stalker -- that can stay in the air for days at a time
4. Northrop Grumman
Northrop has quickly risen to become one of the top suppliers of military hardware in the world. In 2012,
the company sold USD1.2bn worth of drones to Korea.
5. AeroVironment, Inc.
AeroVironment is the company responsible for the “Hummingbird drone” ordered by the Pentagon. But
the incredibly accurate little drone is capable of far more than just looking good. It has a tiny camera
that can follow your every move.
6. Prox Dynamics AS
The Norway-based company is really only famous for one product, but what a product it has become.
They developed the Black Hornet Nano, a tiny hand-held helicopter that can help soldiers survey enemy
areas quickly. It can fly at its top speed for up to 30 minutes at a time and cost the British Army
USD31mn to equip its various regiments with the drone.
7. Denel Dynamics
South Africa is not well known for its drones, but government-owned Denel has seen sales of its drones
increase by 20 percent in 2013 because of the increased demand, according to the company, in the
Middle East, East Asia and Africa.
8. SAIC
The company brought in USD2.87bn in revenue in 2012, up 3 percent from the previous year. Their
specialty is building underwater drones for the Pentagon to defend against submarines.

47
9. Israel Aerospace Industries
IAI was pioneering drone use as far back as the 1970s, but the recent explosion in demand is making the
company a real force in Israel and abroad. The company is working with Korea’s Hankuk Carbon to
develop new drones for the Korean military.
10. Textron Inc.
Their military drones have proven so successful that the company has committed to building unmanned
underwater vehicles.
11. General Dynamics Corporation
The company is one of the major donors to the Congressional Unmanned Systems Caucus, known as the
drone caucus.
12. DJI
The DJI Phantom is the drone of choice for filmmakers and is reported to be the most complete
commercial drone on the market. The company has started pouring its resources into the US market,
betting that the FAA will relax rules in 2016.
Aeryon Labs
Founded in 2007, Aeryon Labs has its headquarters in Canada. Aeryon sUAS set the standard for
immediate aerial intelligence gathering.
SenseFly
This Swiss-based company develops and produces aerial imaging drones for professional applications.
Safe, ultra-light and easy to use, these highly automated data collection tools are employed by
customers around the world in fields such as surveying, agriculture, GIS, industrial inspection, mining
and humanitarian aid. SenseFly was founded in 2009 by a team of robotics researchers and quickly
became the industry leader in mapping drones.
CybAero
CybAero is an aerospace company industry based in Sweden. The company develops, manufactures,
and sells vehicles systems consisting of helicopters, ground stations, sensors, and data links.

48
Market leaders
Market Leaders in Drone Market Space
Textron Draganflyer AeroVironment
Northrop Grumman Boeing / Insitu AeroVironment Lockheed Martin
Market Leaders (Individual Profiles)
Name Products Sector (Value Chain)
Parrot (France)
Positioning: Constructor
Parrot has been widely investing in
the drone sector since 2010, and has
become a global leader in B2C
drones with its famous A/R drone
Clients: B2C & B2B
Direct Competitor of DJI.
The company strategy is to accelerate its sales
in the B2C market by launching new products
(Bebop launch forecasted end of 2014) and
enhancing its distributors network, while
developing its B2B business (which represented
15% of 2013 turnover). This strategy relies on
both internal and external growth.
SenseFly
The main product of SenseFly is a
fixed wing drone called the eBee.
Its applications range from
agriculture (monitoring of crop
health, with a dedicated sensor
developed by Airinov) to
Clients: B2B
Parrot took a majority share (56, 6%) in SenseFly
in July 2012.
AiriNov (France)
Designed a sensor that analyzes the
reflection of the sunlight on the
plants, so as to estimate the crop
health.
Clients: B2B
Parrot took a minority stake in Airinov (20,9%)
in February 2014.
FotoKite (Switzerland)
FotoKite has developed a drone
attached to a tether, hence operates
like a kite.
Clients: B2C & B2B
Other than photo/video usages in the B2C market,
FotoKite has applications in the B2B Market:
photo/video journalism, inspection, etc.
Delta Drone (France)
Positioning: Constructor/
Operator
Delta Drone has developed two
drones: one with a fixed wing, the
other with a rotary wing. The main
focus is inspection, but the drones
can also operate in sectors such as
agriculture or geology.
The company has dual business models and
offers both a renting model and a service model.
It has created the Ecole Française du Drone, to
train drone operators. Unlike its competitors, Delta
Drone has decided to go public very quickly, and
is listed on Alternext since June 2013.
Titan Aerospace (US)
Founded: 2012
Titan has developed a solar powered
drone that can navigate for up to
three years at a twenty kilometers
altitude. The drone is 15 meters long
with a 50 meters wingspan.
Clients: B2B
Google bought Titan in April
2014, and could use its drones to enable Internet
access in remote areas, in addition to taking high-
quality images for

49
DJI (China)
The star product of DJI is the
Phantom, a mass market drone
launched in January 2013.
Clients: B2C & B2B
The company has grown its sales very quickly,
with an average of 20k units per month since its
launch, and is now Parrot’s most serious
challenger on the B2C market.
Cyber Hawk (Scotland)
/Operator
Drones for conducting close visual
and thermal inspections of industrial
assets both on-shore and off-shore
such as flares, wind turbines and
utility transmission towers.
Clients are mainly oil and gas companies, such as
Exxon Mobil, Shell, Total and BP.
RedBird (France)
Positioning: Operator
The company does not manufacture
drones, but it flies them.
Clients: B2B
Among the drone constructors supplying Redbird
are DelairTech and Gatewing (fixed wing),
MicroDrones (rotary wing).
Missions include inspection of transportation
networks, mines and quarries, realization of 3D
maps (photogrammetry), surveillance, etc.
TechJect (US)
Dragonfly drone, a flapping wings
drone initially financed through a
USD1m grant from the US Air Force
Clients: B2B-B2C
Drones used in spying and security scenarios.
The R&D and business approach has been taken
by the American company AeroVironment
(USD250 m of turnover), with its Hu.
Novadem (France)
Specializes in rotary winged drones.
Clients: B2B
It has developed three drones for three specific
markets: military, inspection, and photo/video.
Gimball
Positioning: Constructor A drone for monitoring difficult terrain
Clients: B2B and B2C
Gimball aims to operate in inaccessible places.
General Atomics (US)
Its MQ1- Predator drone is one of the
most famous military drones, and
has been used in many exterior
operations by several armies.
Clients: Defense Contractor
the Predator B (MQ-9 Reaper), has been sold to
the American,
French, British, and Italian armies.
MiroDrones (Germany)
Known for long flight time of MD4-
1000 (a flight time of up to 88 min.
and a payload of 1200 g)
Clients: B2B
Used for security, surveillance and inspection.
The German, Swedish, and Chinese police are
among its clients.

50
Market participants
Market participants
Wing Loong Prox Dynamics Integrated Dynamics
Israel Aerospace
Industries (IAI)
TRNDlabs Parrot/senseFly Honeywell
Ascending Technologies
AscTec
Textron Northrop Grumman GoPro Airware
Schiebel MMist Google Elbit Systems Ltd
Scaled Composites Marcus UAV General Dynamics ASN Technologies
SAIC Lockheed Martin General Atomics Aurora Flight
Safran Morpho
Laird / Cattron Group
International
Draganflyer
Aviation Industry Corp
(AVIC)
RUAG Aerospace L-3 Communications DJI BAE
Proxy Technologies Scaled Composites Denel Dynamics Boeing / Insitu
China Aerospace BAE Systems ASN Technologies SAIC
Challis UAV Inc.
Aviation Industry Corp
(Avic)
AeroVironment China Aerospace
Boeing Aurora Flight Marcus UAV HUVRData, LLC
ZMP SAIC Laird / Cattron Group Cyphy
Yamaha Safran Morpho L-3 Communications Flirtey
XAircraft RUAG Aerospace Japan Drones Korean Air Lines
Wing Looong Proxy Technologies Challis UAV Inc. Finmeccanica
TRNDlabs Prox Dynamics International Elbit Systems Ltd
Topcon Positioning
Group
Parrot/senseFly Intel Laser Motive
Textron / AAI Parrot Integrated Dynamics Draganflyer
Textron Northrop Grumman HUVRData, LLC AeroVironment
Skycatch MMist Honeywell DJI Systems
Secom Marcus UAV Amazon Denel Dynamics
Hanwha Techwin Lockheed Martin Hankuk Carbon Delair-Tech
Schiebel Firefly KAI

51
Compliance note
•The author(s) of this report does(do) not haveany interestsinthecompany(ies) coveredherein.
•HMCInvestment Securities has notdisclosedthematerial containedin thisreportto any institutional investor or thirdpartyprior toitspublication.
•This report accurately reflectsthe author(s)’s professional viewsandwaswritten without any undue external influence or interference.
Investment rating
HMCInvestment Securitiesoffersthree sector investment ratings based on six-month forwardfundamentals andshareprice outlook.
• OVERWEIGHT: Sector-wide fundamentalsandshareprices are expectedtoturnup.
• NEUTRAL: No meaningful fundamental improvement isexpected.
• UNDERWEIGHT: Sector-widefundamentals and share prices are expected toturn down.
HMC Investment Securities offers three company investment ratings based on the relative return expected in the following six months, based on the closing price on the date of
rating declaration.
• BUY:Excessreturn of +15%pormore
• MARKETPERFORM (M.PERFORM): Excess return of between-15%p and+15%p
• SELL: Excessreturn of-15%porless
Stock ratingsdistribution (January1-December 31,2015)
Rating Count % of ratingcategory
BUY
MARKETPERFORM
SELL
129
26
1
82.7
16.7
0.6
•Thisreport hasbeen prepared for informational purposes only and thus may not be reproduced or distributed without the prior written consent of HMC Investment Securities.
• The information and statistical data contained herein were taken from sources believed to be reliable but in no way can be guaranteed and, therefore, final investment decisions should be made based on each
client’s own judgment.
•Thisreportcannot be usedas evidence in any legal disputesrelated to the client’s investment decisions.

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